The future of Social Security might not be as grim as some people predict, but it’s almost certain that beneficiaries will see their payments reduced in about a decade. Social Security’s Old Age and Survivors Insurance (OASI) Trust Fund is expected to run out of money as early as 2032 or 2033, leaving the program solely reliant on payroll taxes for funding. Those taxes will only cover about 77% of current benefits.
Most millennials won’t have to worry about it for another 25 to 30 years when they become eligible for Social Security. Even so, if you’re a millennial and want a head start on strategizing for retirement, now’s a good time to familiarize yourself with Social Security and what it might mean for you.
Here are four things you need to know about the program right now.
Social Security is Not Going Away
Despite dire predictions that Social Security will run out of money someday, that will not happen under the current system. The program is self-sustaining in the sense that it’s more than 75% funded by payroll taxes contributed by workers and employers.
Some lawmakers have proposed privatizing the program by letting workers set up their own Social Security savings accounts — including former Vice President Mike Pence, a likely 2024 presidential candidate. But the vast majority of Americans oppose privatization, which means it has little chance of ever passing Congress.
Your Payment Will Be Smaller Than Your Parents’ and Grandparents’
Even though Social Security isn’t going away, the program will shrink when the OASI Trust Fund is depleted. The current projection is that you’ll get 77% of the Social Security benefit you’ve been promised, Motley Fool reported. One result is that millennials’ payments will not be as big as those of earlier generations — and the difference could be substantial.
A 2022 paper from HealthView Services found that 35-year-old millennials (the generation’s midpoint age) earning between $50,000 and $150,000 a year would see a decline in future lifetime benefits of between $365,000 and $675,000, based on factors such as full retirement age, average lifespans and annual inflation adjustments.
There has been talk about bolstering the program by raising the payroll tax rate on Social Security as well as the annual income threshold when Social Security taxes are no longer deducted. If this happens, millennials might see their payments rise by about the 77% mentioned earlier.
Millennials and other younger workers who want to influence future Social Security policy are advised to pressure elected officials to increase benefits as a way of offsetting future inequities, Reuters reported.
You’ll Have to Wait Longer to Get Your Full Benefit
By the time millennials can apply for Social Security, the full retirement age (FRA) to claim benefits will be at least 67 years old. In fact, many baby boomers and all Gen Xers won’t reach FRA until 67. The traditional FRA of 65 years old was phased out more than two decades ago. Since then, the age has gone up incrementally, depending on your birth year. For anyone born in 1960 or later, the FRA is 67 years old, meaning that beginning in 2027, the FRA for all new Social Security applicants will be 67 across the board.
Some lawmakers have floated the idea of raising the full retirement age to 70 to account for longer life expectancies. Regardless of whether that happens, millennials can expect to work longer than their older peers to ensure a comfortable retirement.
You’ll Usually Get an Annual Raise — But it Might Not Be Enough
In most years, Social Security checks rise annually through cost-of-living adjustments (COLAs) designed to account for inflation. Since the COLA was first implemented in 1975, there have been only three years that payments haven’t been increased. This year’s COLA of 8.7% is the biggest in more than four decades.
But these adjustments don’t always keep up with inflation. For example, the 2022 COLA of 5.9% was almost immediately nullified by an inflation rate that spent most of the year above 7%.
More From GOBankingRates